For today’s Trade of the Day, we will be looking at Home Depot Inc. (HD).

Before analyzing HD’s chart, let’s take a closer look at the company and its services. The Home Depot, Inc. operates as a home improvement retailer. The Home Depot, Inc. was incorporated in 1978 and is based in Atlanta, Georgia.

The chart of HES below is a weekly chart with an ADX indicator at the bottom.  The description coming up next explains how to use the ADX.

Average Direction Index (ADX) – Strength Indicator

The Average Directional Index consists of 3 lines:  Green, Red and Black.

• Green = +DI (Bullish)
• Red = -DI (Bearish)
• Black = ADX Strength Line

The DI line that is on top is in control.  If the ADX line is heading up, strength is supporting the DI line that is on top and in control.

Each candle on the chart represents price movement over a 5-day (week) period; therefore, it takes weeks for trades to play out.  When the -DI crosses over the +DI line, it gives a buy signal for Puts as the -DI line (red) appears as if it is in control and rising to head up on the ADX indicator, and as the ADX turns up that is even more bearish, suggesting a downward move is gaining strength.  When the +DI (green line) crosses the red and the black line points up it shows an upward trend and Calls can be considered.

Let’s look at HD’s weekly chart.

The ADX -DI (red line) has crossed the +DI and the black ADX line is curling up.  As long as the -DI is above the +DI, price should fall.

­­

This signal could give a quick payout if it continues the downward move, and the strength of this pattern continues.  I am typing this on Wednesday, and HD costs about \$275.97.   If HD’s price moves to \$275 and the -DI (red line) stays above the +DI, and the black line is heading up, you could consider a Put trade.  The short-term price target for HD is \$260 and then, perhaps, lower.

Check Out How an Option Trade Could Pay Out Big Time

Option trading offers the potential of a lower initial investment and higher percentage gain.   Let’s take a look and make a comparison.

To buy shares of HD stock you would pay about \$275.97. You would wait until the price reached a bottom before buying stock.

If you bought 1 Put option covering 100 shares of HD with an Oct 21st expiration date for the 260 strike, the premium would be approximately \$4.75 today, or \$475 for 1 option.  If price fell \$15 over the next few weeks, the premium would likely increase \$7.00, giving \$700 profit on your \$475 investment. This is a 147% gain.

Trading options is a win, win, win opportunity.   Options often offer a smaller overall investment, covering more shares of stock and potential for greater profits.

I like to stress when trading options, you don’t need to wait for the expiration date to close the trade. You can close anywhere along the way prior to the expiration date.  It is never a bad idea to take profit.

Trading options is like renting stocks for a fixed period of time. The potential to generate steady income with options is real, and it can be transforming.

Routinely remind yourself – I believe in myself and my ability to succeed. I believe in an abundance of unlimited possibilities. The future will be awesome!

I wish you the very best,

Wendy